How budgets are used in planning and control and the calculation and interpretation of variances
Businesses compare their budgeted figures against actual results. The difference is called a variance. Managers use variances to spot problems and take corrective action.
Formula
Variance = Budgeted Figure − Actual Figure (F = favourable, A = adverse)
Real World
When EasyJet's fuel costs exceeded budget during the 2022 energy crisis, its adverse cost variance triggered an immediate review of hedging strategy and route pricing to restore profitability.
Exam Focus
Always state whether each variance is favourable or adverse and explain why — a bare figure without interpretation will not score the analysis mark.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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